Mercer: Merit Budgets at 3.3% in '04, 3.5% in
'05

US employers plan to grant average pay increases of
3.3% this year, while the outlook is slightly better for
2005, with employers budgeting average pay increases of
3.5% for next year.
However, if merit budget projections hold, 2005 will mark
the fourth consecutive year pay increases have averaged
less than 4%, according to Mercer Human Resource
Consulting’s
2004/2005 US Compensation Planning Survey.

Raises will still outpace inflation in 2004, albeit
by a much narrower gap.Steven Gross, leader of Mercer’s compensation
consulting practice in the US points out during the most of
the 1990s, average pay increases hovered about 2% above
annual inflation. Now, that gap has closed to about
1%.
Gross attributes this movement in part to changing dynamics
of the labor market – from an under-supply to an
over-supply of talent – and in part to the increased use of
incentive pay rather than base pay to reward employee
performance.

While merit budgets remained depressed compared to
their levels in the 1990s, Mercer notes few employers are
freezing pay levels this year. The number of employers
reporting salary freezes for one or more segments of their
employee population fell to 5% in 2003, from 12% in 2003
and 16% in 2002.
Among the five employee categories, executives are most
likely to have their pay frozen in 2004.

“With the economy rebounding and the job market growing,
few companies can afford to eliminate salary increases for
fear of losing talent,” Gross explains. “However, several
industries still seem to be struggling to manage costs
and/or grow revenues, so we will likely see the continued
selective use of salary freezes in these industries.”

The 2004/2005 edition of Mercer’s survey includes
responses from nearly 1,600 employers across the US and
reflects pay practices for nearly 14 million workers. The
survey results are captured for five categories of
employees: executive, management, technical/professional,
nonexempt clerical/technical, and nonunion hourly.
The full report can be purchased at
www.imercer.com/cps
.